Cannabis: The Great Disruptor Arrives To Food And Beverage

May 1, 2019

It’s a topic of conversation around the country and in every nook and cranny of the food and beverage world. Depending on who you talk to, cannabis is primed to be a golden goose for food and beverage companies – or is a movement rife with risk and regulatory chaos. So, which is it? If you’ve tuned into the topic of cannabis in food and beverage in the last six months it won’t surprise you to know that it’s well, possibly both. But who is the consumer for these products? Where is the real opportunity, and what’s coming next? Let’s dive in.

CANNABIS, CURRENTLY

The 2018 Farm Bill legalized industrial hemp and its derivatives, including cannabidiol (CBD). But the FDA has not yet released or implemented new rules for CBD, a non-psychoactive chemical compound found in cannabis. As Sen. Ron Wyden points out to Rolling Stone: “The bill legalized hemp and its derivatives, which means CBD,” Wyden says. “The FDA just hasn’t stepped up to affirmatively update its regulations so they comply with federal law.”

In particular, although CBD is legal to consume — it remains unlawful for food-makers to put it into food and beverage products. In February, the New York City health department began to crackdown, seizing CBD products. And the states of Maine and Ohio have warned retailers to pull CBD-containing food and beverages from the shelves. However, the enforcement tends to be minimal unless health claims are made on label.

The FDA has public hearings scheduled for May 31, 2019 and as Food Processing points out, the agency “emphasized that CBD is not allowed in food or beverage products at this time.”

“Businesses selling food and beverages infused with CBD have a message for the Food and Drug Administration: Regulate us, please.” -CNBC

VERNACULAR

Cannabis: A genus of flowering plants that includes Cannabis ruderalis, Cannabis sativa, and Cannabis indica.

Cannabinoids: The chemical compounds found in the Cannabis plant. The best known are THC and CBD. Additional cannabinoids include CBN (Cannabinol) and CBG (Cannabigerol).

CBD (cannabidiol): One of 100+ molecules called cannabinoids found in cannabis. In recent years CBD has some health benefits attributed to it. Unlike THC, CBD has no psychoactive (high-inducing) properties.

Industrial Hemp: While “hemp” and “cannabis” are technically synonymous, industrial hemp specifically refers to the variety of cannabis sativa with low levels of THC, (less than 0.3 percent of THC on a dry weight basis) grown as a fiber or seed crop.

Marijuana: A slang term for the cannabis plant.

Terpene: Organic compounds produced by plants that have a strong aroma. They are constituents of essential oils.

THC (Tetrahydrocannabinol): The most recognized psychoactive (high-inducing) cannabinoid in cannabis.

A DISRUPTOR IN THE MAKING

Cannabis is on the precipice of causing some big changes in the food, beverage and healthcare industries. Says Euromonitor: “Within the next decade, some form of cannabis will be a part of consumers’ daily routines, either as a functional ingredient in foods, beverages and beauty or as a wellness mood enhancer in health.” In fact, the legal cannabis market is expected to grow to $166 billion by 2025.

Legislative limbo not slowing momentumThe regulatory ambiguity is not stopping the big brands scooping up cannabis start-ups – or the brands already jumping right into the CBD pool. And with good reason: consumer interest in CBD infused products is huge and enormous growth is anticipated – as Iconoculture notes that “82% of U.S. consumers believe that cannabis products can offer wellness or therapeutic benefits.”

It seems a day doesn’t pass without news of a big merger or purchase in the CBD world…

Estée Lauder and Martha Stewart are developing CBD beauty products.

Constellation Brands, which owns Corona and other beers bought a major stake in a Canadian cannabis company.

Molson-Coors has also invested heavily in cannabis and Heineken-owned Lagunitas launched a THC-infused beverage in California.

Pharma/cannabis company Tilray Inc. is partnering with Authentic Brands to sell CBD- based products including foods such as mints.

BIG BRANDS: EDGING OUT THE SMALL GUYS?

The arrival of huge brands is going to completely change the cannabis industry, even before CBD is legalized in food and beverage federally. Forbes predicts that as “billions of dollars pour into product development, marketing and manufacturing, these companies will be looking to create big brands with the market share to match.” One concern that some have is that the regulatory limbo is creating an environment where smaller brands will suffer while bigger brands succeed. Basically, bigger brands can afford to “fight city hall” in a way that start-ups and small business can’t.

“Until the FDA makes up its mind, the spoils will be left to the giants.” -FORBES

CONSUMER PERCEPTION

In the midst of regulatory confusion and brands chomping at the bit to make money are consumers. On the whole, consumers have a positive perception of hemp-derived CBD. The roots behind this positive perception is in the health halo that CBD enjoys. FONA recently asked a panel of shoppers about their experience and impression of both CBD and THC. You can see that full piece here. But the general lesson is that the average consumer is operating from a knowledge base of mostly positive information, much of it anecdotal or experiential.

INCREASING POPULARITY OF CBD

Other research reveals a similar theme as our shopper panel uncovered: Consumers view CBD positively. In fact, a press release from High Yield Insights pointsout that 40% of U.S. adults are interested in trying CBD.

Accessible forms strike the fancy of interested consumers, especially chocolates and baked goods. According to Iconoculture, “CBD gummies” was the third most popular food-related Google search in 2018 — following unicorn cake and romaine lettuce.

“…when your friend’s dad who hasn’t eaten anything two days after chemo starts eating regularly after using cannabis, you can see how the product has evolved past its stereotyped stoner roots.” – Theo H., FONA Shopper Panelist

BROAD CONSUMER BASE WITH MIXED MOTIVATIONS

Defining the “cannabis consumer” could be a flawed undertaking. Research shows that the consumer base spans the spectrum. “Based on the convergence of key values like relaxation and serenity ascending for all consumers… cannabis products are poised for growth with a broader swath of consumers than marketers realize,” points out Iconoculture. Research from A.T. Kearney shows that the belief in cannabis as a therapeutic tool spans ages and demographics; around 80% of consumers at every age believe in its wellness value.

Consider the path that plant-based food and beverage has taken. Or clean label products. Consider super foods and functional proteins. When consumers perceive that an ingredient or product will truly help them with wellness goals – be it relaxation or focus – they will purchase. And they will change the industry as they do.

However, as we mention in the next section, it does not mean that the path forward is risk-free for CPG brands.

KNOW THE RISKS

Of course, the space is not without potential pitfalls. To prove the actual health effects of CBD may require more time and more studies. Says Steve Mister, of the Council for Responsible Nutrition, “Scientific evidence of health effects needs to keep pace with consumerfrenzy…the industry will do well to commit itself to study carefully this golden goose.” There is simply a lack of in-depth scientific research on the topic. Jake Black and Ryan Beigie of Treehouse Hemp agreed in a recent Prepared Foods webinar, at least in part. They point out that there is more study needed overall in the CBD space, particularly for “full spectrum,” a term often used to describe a product using multiple cannabinoids (i.e., CBD with CBG or CBC.)

The key for brands looking to avoid risk but still capitalize on CBD in the near future? Transparency and careful positioning. We advise to educate consumers whenever possible what is known (and not known) about the effects of CBD consumption. And if and when you’re able to move forward– be transparent about how much CBD is actually in your product. It may save hassle (and protect consumer trust) in the long run.

“Just because you read it on the internet doesn’t mean that it’s true… any finding that should be believed should be in a scientifically published journal that has been peer-reviewed. Otherwise it’s just anecdotes at best.” -Jack Black, Treehouse Hemp

“There are no known peer-reviewed, published studies conducted on the safety and efficacy of edible cannabis.” -Carol Culhane, International Food Focus To Food Technology

Not at Risk? Brand Reputation

Research from A.T. Kearney suggests and analysis from Bloomberg’s Sarah Halzack confirms –consumers in general will not judge an established brand for entering into the cannabis fray. There may be risks in adding cannabis to your product portfolio, but a tarnished reputation is unlikely to be one of them. When asked, “if a large, well-known company were associated with cannabis, would your perception of that company change?” — the vast majority said their perception would either improve or remain unchanged.

THC Overdose More Likely in Edibles

Where they are legal, THC edibles are proving to have a greater likelihood of overdose. As the New York Times noted recently. THC-infused edibles cause a disproportionate number of ER visits. The reason stems from the fact that it takes longer to feel the “high” from THC when ingested instead of inhaled. Consumers eat more to speed up the result and then accidentally overdose.

Taste IS your Opportunity

You see it every day in the industry news. There is innovation going on in the cannabis market. From Recess, a hemp-infused seltzer to CBD jelly beans from Jelly Belly founder David Klein, there are brands
capitalizing on the market, and new products being added every day.For a brand looking to dive in to the market in the near future, where is your opportunity? Bars, protein powder, confections? At FONA, we say that the priority should not only what you create – but how you do it. There is a huge quality gap in some of the products on the market, according to the Wall Street Journal and Treehouse Hemp.

Says Ryan Beigie of Treehouse Hemp: There’s still a ton of room for businesses to come in and make their mark. Really what the market is looking for is a high-quality product – or even just a well-executed product.”

He points out that there are many issues with the products on the market, from water solubility to proper homogenization. The greatest problem however may be taste. As the Wall Street Journal puts it, there is a need to dial down the ‘oily grass’ flavors and notes of dish soap and urine.

As Beigie notes, established brands have an opportunity to capitalize on that trust and deliver a well executed product. Of course, as we alluded to – keeping trust is not always a given. Helping consumers achieve clarity around potential CBD benefits and clear labeling of CBD content should be a priority in future development.

The Takeaways

What’s next for cannabis in food and beverage? The FDA scheduled hearings for May 31, so regulatory clarity may finally be on the horizon. Research and study is also needed according to both the FDA and industry experts. The potential opportunity in the space may be worth the wait, of course. We’ll say it again – prioritizing taste and overcoming technical challenges will be the winning move for brands in the cannabis space. Equip yourself with the right partners to combat bitterness, off-notes and solubility – and you’re primed to win. We’ve seen it time and time again – taste is THE #1 purchase driver for consumer purchase. After overcoming the technical challenges, careful positioning and clear labeling will help you get – and retain customer trust.

You deserve more. Let’s get started.

What does true partnership look like? You deserve a flavor partner ready to turn these trends into the tangible.

Let FONA’s market insight and research experts get to work for you. Translate these trends into bold new ideas for your brand. Increase market share and get to your “what’s next.” Our technical flavor and product development experts are also at your service to help meet the labeling and flavor profile needs for your products to capitalize on this consumer trend. Let’s mesh the complexities of flavor with your brand development, technical requirements and regulatory needs to deliver a complete taste solution.

From concept to manufacturing, we’re here for you — every step of the way. Contact our sales service department at 630.578.8600 to request a flavor sample or chat us up at www.fona.com/contact-fona/